The iShares 3-7 Year Treasury Bond ETF (IEI), which tracks the performance of U.S. Treasury bonds with maturities between three and seven years, saw its price dip to $119.62 as of September 30, reflecting a decline from its last close of $119.92. This movement comes amid rising yields across the Treasury curve following Federal Reserve Chair Jerome Powell's remarks at a Nashville meeting, where he indicated that the Fed is not in a hurry to cut rates. The market had been pricing in more aggressive rate cuts, but Powell's comments, along with those from Atlanta Fed President Raphael Bostic, have tempered those expectations, particularly affecting short-term yields like the two-year Treasury, which saw the most significant increase.
The adjustment in rate cut expectations has led to a decrease in bond prices, as evidenced by the IEI's current performance. Interest rate swaps have also seen a reduction of more than 10 basis points in rate cut expectations through May, reflecting decreased demand for hedging against lower rates. Investors are now turning their attention to the upcoming jobs report, which could sway market sentiment. A weaker report might revive hopes for a 50-basis-point cut, potentially leading to a bond market rally, while strong employment data could further diminish the likelihood of aggressive rate cuts, maintaining pressure on bond prices.